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Urban Investor's Dictionary: NASDAQ

We hear it everyday, "The Dow is up. Nasdaq is up." What is Nasdaq and how does it differ from the Dow and the S&P 500?

February 8, 1971 the National Association of Securities Dealer Automated Quotation was founded. Initially just a quotation system, It was the world's first electronic stock market. At first the Nasdaq Stock Market was unpopular with brokers because they lowered the spread (difference between bid price and ask price) on trades, but the sheer volume of traffic the new system would generate has more than made up for that.

Nasdaq's declaration is that it is "the stock market for the next 100 years." It has developed a reputation for attracting new growth companies such as early Apple and Microsoft, Cisco, Dell, and Oracle. Nasdaq is the first stock market in the United States to facilitate online trading. Nasdaq is also heralded for helping to modernize the IPO.



What you commonly hear referred to as "The Market", however is the the Nasdaq Composite Index. This, together with the Dow Jones Average, and the S&P 500 make up the big three of the most followed indices in the American stock market. The Nasdaq composite, unlike the others, is not limited to companies based in the United States. Nasdaq has traditionally boasted a focus on information technology based companies. The Nasdaq is a capitalization-weighted index consisting of roughly 3,000 common equities listed on the Nasdaq Stock Exchange and includes everything from American Depository Receipts, Common Stocks, REITs, Trading Stocks, and Limited Partnership Interests.

Nasdaq serves as both a global marketplace for buy and trading securities and also provides the yardstick index for American technology stocks. Another factor that differentiates the Nasdaq from its contemporaries is the fact because Nasdaq is a global exchange, it operates on its own unique trading hours. Nasdaq offers a 4:00 am to 9:30 am Eastern Standard time pre-market session. It operates during the standard 9:30 am to 4:00 New York trading session, and the there is and additional post market session from 4:00 pm to 8:00 pm.

As afore stated, the Nasdaq Composite is a capitalization-weighted index, meaning as day by changes in individual stock prices affect the whole index, the change in the index is affected proportionally by the individual company's overall market share. The bigger the fish, the bigger the splash.

The Nasdaq Stock is one of the largest in the world, second only to the New York Stock Exchange . The Nasdaq would make further progressive history in November 2016 as Adena Friedman became the first woman to run a major American exchange when she accepted the role of CEO of Nasdaq.

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